China's Propaganda IPO Bubble

In the U.S., speculators have exploded the value of social media companies. In China, you could say the same for propaganda outlets.

On Wednesday, trading was halted on the People's Daily Online, the official Communist Party newspaper, which recently went public. The reason: Investors were buying up the stock too quickly, or as the country's state-run media says, the shares were suspended under rules “aimed at reining in speculative manipulation of share prices." That's a pretty incredible development. Like if PBS.com decided to go public and it's stock went gangbusters. That would never happen in the U.S. because nobody thinks a government-owned website could be the next big thing. But in China, things are different.

“The reason why investors are bullish about the news portal is because of its unique background," Li Weidong, research director at consultancy China Venture, told the People's Daily. "In some investors’ eyes, the state-backed media company’s profits are somehow guaranteed given the support it receives from the government’s preferential policies.”

The idea is that because the People's Daily is spouting off government propaganda 24/7, it will thrive in the country's state-controlled media environment. And so far, the numbers don't lie. As Josh Noble at Financial Times notes, the stock of the People's Daily Online ​has soared in value since its debut last week. "On the first day of trading alone shares rose over 70 percent. The company now has a market value higher than the New York Times."

Spotting a lucrative trend, other propaganda outlets are getting into the game as well, with the expected IPO of the online operations of China Central Television and Xinhua News Agency on the Shanghai index later this year, according to People's Daily.

One could argue that the demand for People's Daily stock is simply a reflection of investor excitement over Web portals in general. But that doesn't hold up. If you had to choose a private competitor to the People's Daily it would likely be Sina, the wildly popular micro-blog and news portal that, as The Wall Street Journal's Tom Orlik put it, is the "closest thing China has to a forum for democratic debate." In the lead up to The People's Daily IPO, Orlik said the comparative stock performance would be enlightening. "Now investors with access to the Chinese market have the chance to double down," he wrote. "Anyone betting censorship will win out over free speech can buy into the People’s Daily IPO and take a short position on Sina’s stock."

Thus far, it looks like propaganda and censorship are winning out over free speech. In the last two months, stock in Sina has fallen steadily (see the chart at the top). Meanwhile, People's Daily is soaring and, according to FT, that even flies in the face of its own financial fundamentals, which pale in comparison to Sina.

"People’s Daily Online has a far lower readership than China’s main news portals, like Sina. Comparisons on revenue and profits are equally unflattering," the paper says. "The company had hoped the money raised at IPO would help them to catch up." With its stock suspended, it will be a little more difficult to raise an unlimited amount of cash but, as it stands, it's clearly not in any financial trouble. In sum, if you're in China, it pays to be a propaganda rag.

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